By Leith van Onselen In December, David Collyer from Prosper published a cracking article entitled Englobo, which discussed the practice of land banking and land speculation on Melbourne’s fringe, and included the below table showing the large land banks held by Australia’s residential housing developers: Lots settled Lots in development Disclosed end value Average lot
Australian property is one the widest and deepest asset bubbles in the history of capitalism. Any objective assessment of this “market” can lead to no other conclusion.
With a long history of commitment to home ownership, Australians have always been prepared to structure their finances around property. This showed up in a total dwelling stock to GDP ratio that persisted around a very high 150% from 1960 to 1990. In the late 1990s that shot up to 200% and then embarked on near ceaseless climb to 360% today.
There are many other guides to the extreme overvaluation of Australian property. The ratio of household debt (overwhelmingly mortgages) to disposable income is the highest in the world at 186%. Median price to income multiples are anything from 12x in Sydney, to 10x in Melbourne, down to still immensely unaffordable 6x in smaller capitals, up from 3-4x times in all over the long run for all. The extent of overvaluation is plain.
What makes the Australian property bubble unique is the degree to which it has warped the nation’s political economy. Once a diverse and vibrant resources and manufacturing economy, over the twenty years that the Australian housing bubble grew that shape changed completely. An huge proportion of the debt underpinning Australian property is borrowed from offshore, almost $1 trillion, mostly by its big four major banks. This perpetually inflated the local currency, as well as input costs like land prices, which dramatically diminished Australian competitiveness and drove tradable sectors like manufacturing offshore. From 14% of output in the 1970s, manufacturing hit 5% of output in 2016, the lowest in the OECD.
Moreover, the centrality of Australia property to the wealth of the national polity increasingly distorted policy and even elections. In the 2008 global financial crisis, the then Labor government bailed out the the big four banks with guarantees to their offshore loans, rewriting the entire rule book for Australia’s financial architecture in one panicked afternoon. Public subsidies poured into demand-side stimulus, as well as RMBS markets. Any notion that Australian property was a “market” evaporated. Australian property was, and remains, a kind of asset quango, a public/private partnership in support of the retirement plans of its pre-dominant Baby Boomer generation.
MacroBusiness cover all elements of Australian property daily.
These guarantees exist to this day and reached their peak distortion to the political economy in 2016 when the ruling Liberal/National Party Coalition government fought and won an election in the singular defense of “negative gearing”, the principal tax policy most responsible for investor’s favouring property over other asset classes.
Contemporary Australia does not just have a property bubble, it has morphed into Propertocracy in which the primacy of house prices determines who leads the country, what policies are chosen and which generations prosper.
By Leith van Onselen After yesterday questioning the Victorian planning minister’s plan to limit new development in established inner “areas with significant local character”, the Victorian Government has moved to expand Melbourne’s effective land supply by 60,000 lots by the end of 2014. From the AFR: Mr Guy said the 60,000 lots were within the
By Leith van Onselen The Adelaide Bank/Real Estate Institute of Australia (REIA) has today released its quarterly affordability report, which revealed an ongoing improvement in both home buyer and rental affordability over the December quarter of 2012, although the number of first home buyers (FHBs) has dropped markedly. According to the Media Release: “The December
By Leith van Onselen SQM Research has just released Stock on Market data for the month of February, which registered a 1.9% increase over the month, driven predominantly by big increases in listings in Melbourne and Sydney (see below table). The rise in listings is largely seasonal, as listings typically increase over the first few
By Leith van Onselen From The Age today comes news that Victoria’s planning minister, Matthew Guy, is moving to establish new residential zones aimed at guiding future housing development: What type of housing can be built on Melbourne’s streets and how much new housing suburbs can expect to accommodate will be detailed in new planning
By Leith van Onselen The Urban Development Institute of Australia (UDIA) yesterday released its annual State of the Land Report (below), which provides an assessment of land supply in Australia’s capital cities. For me, the centrepiece of this year’s report are the below charts showing an ongoing increase in fringe land values in Melbourne, Brisbane
By Leith van Onselen The National Housing Supply Council (NHSC) on Friday released its latest annual report on housing supply and affordability (sorry I just got it). The following are extracts from the executive summary: Housing stock and tenure: Since 2001, detached houses have declined as a proportion of all dwellings, while medium and higher
By Leith van Onselen Property Observer today has released a great primer summarising the various incentives on offer from Australia’s state and territory governments for purchasers of “off the plan” dwellings. This is a good chance to compare the grants with sales and gauge their efficacy to date. Below are the incentives on offer (quoted
By Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday released its preliminary auction results for the weekend just gone, which registered a small dip in the auction clearance rate and a high number of missing results. The REIV reported a preliminary clearance rate of 69% on 884 auctions. This compares to last
Stephen Nichols, property editor of the Sydney Morning Herald, has a new video that poses some sticky questions for the Australian property market. MB has noted on a number of occasions that the media and real estate industry have an uncomfortably close relationship that seems to have little to do with “reporting”. View the above
By Leith van Onselen January’s new home sales figures, released last week by the Housing Industry Association (HIA), were disastrous for Queensland, registering the worst monthly house sales and the lowest annual sales in the series’ 16.5 year history (see next chart). The poor result has clearly worried the Queensland Government, which over the weekend
By Leith van Onselen The February results are in for the RP Data-Rismark 5-city dwelling price index, which recorded a 0.26% rise over the month, driven by a big 1.55% increase in values in Melbourne (see next chart). It was the second consecutive monthly increase and followed January’s 1.11% increase at the 5-city level. All
By Leith van Onselen Whoa! Weekly data is the new black in realty. SQM Research has now launched a new Weekly Rents Index, which suggests that the pace of rental growth is slowing. Below is the Media Release: New evidence suggests that rental growth in many parts the country is slowing. Although landlords continue to wield
By Leith van Onselen The Housing Industry Association (HIA) has just released new homes sales data for the month of January, which continued its tentative recovery. Below is the Press Release: New home sales hit the right note for the new year, posting a fourth consecutive rise in January, said the Housing Industry Association, the
By Leith van Onselen From Property Observer comes news today that AV Jennings has posted a -$19.1 million loss for the first half of the 2013 financial year compared to a $3.3 million profit a year ago. This follows news earlier in the week that Becton had fallen into receivership as well as the first
By Leith van Onselen RP Data has launched two new leading indices, which look like a great addition to the toolkit of any housing analyst. The first index, called the “RP Data Mortgage Index (RMI) provides a real time indicator for mortgage market conditions, leading the ABS Housing Finance data by at least six weeks.
By Leith van Onselen This blog has argued feverishly that exorbitant land costs are the key driver of higher housing prices in Australia. For example, using data derived from the Australian Bureau of Statistics (ABS) and the Reserve Bank of Australia (RBA), one can show that the value of residential land relative to Australia’s GDP
Another major developer eats dirt today with Becton Group defaulting on loans to Goldman Sachs. The AFR reports: Becton Property Group’s corporate entities have been put into receivership by the beleaguered company’s lending consortium, led by Goldman Sachs. The residential and retirement village developer had been negotiating with its corporate lenders to gain the crucial
By Leith van Onselen It seems Adelaide developers have joined their east coast brethren by offering generous incentives to buyers of house and land packages. From Adelaide Now: State government grants and record low interest rates are starting to have an impact, with Housing Industry Association figures revealing new home approvals in South Australia increased
By Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday released its preliminary auction results for the weekend just gone, which registered the strongest result in over two years. The preliminary clearance rate of 73% recorded on 903 auctions reported to the REIV. This compares to last week’s final clearance rate of 70%
Please find below another interesting article from Philip Soos debunking some of the common misconceptions around negative gearing of Ausralian property. Philip is a Masters research student at the School of Humanities and Social Sciences, Deakin University. In Australia, few housing market policies are more contentious than negative gearing (NG). At the forefront of defending
By Leith van Onselen Over the weekend, SQM Research released its new Vendor Sentiment Index, which gages the sentiment of vendors selling their properties on a weekly basis. Below is the Media Release pertaining to the new index: Home Sellers Boosting Asking Prices Vendors have been lifting their asking prices throughout the months of January
By Leith van Onselen Publicly-listed Australian mortgage broking firm, Mortgage Choice, has taken self-interest to another level in the wake of the sharp fall in first home buyer (FHB) mortgage demand, whereby the proportion of mortgages to FHBs fell to the lowest level since June 2004 following the recent cancellation of grants to first-time buyers
By Leith van Onselen In the week ended 21 February 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.01% increase, which followed las week’s 0.16% increase (see next chart). Value gains were driven by Melbourne and Brisbane, which more than offset falls in the
By Leith van Onselen Oliver Hume has released some worrying statistics for Melbourne’s house-and-land market. From Property Observer: According to the latest quarterly report from Oliver Hume, there has been a 29% increase in the number of residential projects being marketed on Melbourne fringes since 2006 with the real estate group forecasting 160 active projects
By Leith van Onselen Colliers International has released research today showing a big jump in distressed property listings in the second half of 2012, with further increases expected in 2013. From Property Observer: Distressed property listings surged 36% in the second half of 2012 on the back of 5,207 companies going into external administration in
By Leith van Onselen The confusing signals coming out of the housing market have continued, with the release of the January dwelling price data from Residex showing that house price nationally fell by -0.88% over the month and by -0.38% over the quarter, but were 0.82% higher over the year. By contrast, unit values rose
By Leith van Onselen SQM Research has just released rental vacancy rates for January, which registered a sharp fall from December as the traditional Christmas seasonal uplift disipated (see next table). At the national level, residential vacancies declined by 0.4%, coming to a total of 54,156 homes. However, the vacancy rate was 0.1% higher than